October 5, 2018 / 6:33 PM / 2 months ago

TREASURIES-Yields rise, curve steepens after solid jobs report

 (Recasts; adds analyst quote, updates yields, table)
    By Kate Duguid
    NEW YORK, Oct 5 (Reuters) - U.S. Treasury yields across
maturities rose on Friday with longer-date bonds at multi-year
peaks, steepening the yield curve, after the Labor Department
reported U.S. job growth slowed in September but wages rose
steadily.
    The 30-year Treasury bond reached a four-year
high of 3.424 percent, up 7 basis points from late Thursday. The
benchmark 10-year yield rose to 3.248 percent, up
5.3 basis points.
    Longer-dated yields, which reflect traders' views of the
health of the economy, often rise on strong data. Robust
economic growth prompts many investors to sell safe-haven
Treasuries and take on assets with higher potential returns. 
    "We take it as a strong report that doesn't change the
landscape and that should allow the 10-year yield to creep up to
3.25 percent," said Matt Toms, chief investment officer of fixed
income at Voya Investment Management.  
    Nonfarm payrolls increased by 134,000 jobs last month, the
fewest in a year, but the Labor Department report also showed a
steady rise in wages, implying a rise in inflation, which could
keep the Federal Reserve on its path of gradual interest rate
increases.
    "The report was solid even though the headline did miss. The
unemployment rate fell for the right reasons and the wage number
was strong. What was odd was the rate-market reaction to this,"
said Priya Misra, head of global rates strategy at TD
Securities.
    Yields fell immediately after the report, then whipsawed to
hit session highs. Yields kept rising in afternoon trade as
Treasury prices sank, extending a sell-off this week.
    On Wednesday, a U.S. government bond index
compiled by Bank of America Merrill Lynch posted its biggest
daily price loss since March 2017 on economic reports about the
U.S. service sector and private payrolls. 
    The yield curve steepened, with the spread between two- and
10-year yields last at 34.6 basis points, up from
31.5 late Thursday. The five- and 30-year yield spread
 was last at 33.8 basis points also up from
Thursday. 
    Other analysts suggested that the rise in yields was
primarily a result of increasing supply. As the Fed winds down
its post-crisis bond-buying and the Treasury issues more debt to
pay for President Donald Trump's $1.5 trillion tax cut, the
market has been flooded with new supply. 
    BlackRock estimates that the net supply of Treasury
securities will more than double this year, to over $900
billion, and rise to nearly $1.2 trillion in 2019, Breakingviews
reports.
    "The bigger picture is that the supply is relentless," said
Don Ellenberger, head of multi-sector strategies at Federated
Investors. "The underlying supply and demand technical is
supporting yields to go higher."
    
      October 5 Friday 2:21PM New York / 1821 GMT
                               Price                  
 US T BONDS DEC8               137          -0-29/32  
 10YR TNotes DEC8              117-160/256  -0-60/25  
                                            6         
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             2.175        2.2167    -0.005
 Six-month bills               2.355        2.4157    0.002
 Two-year note                 99-188/256   2.8891    0.009
 Three-year note               99-86/256    2.9877    0.018
 Five-year note                99-22/256    3.0744    0.022
 Seven-year note               98-232/256   3.176     0.036
 10-year note                  96-252/256   3.2347    0.040
 30-year bond                  92-84/256    3.4116    0.058
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap        17.50         0.50    
 spread                                               
 U.S. 3-year dollar swap        16.00         0.50    
 spread                                               
 U.S. 5-year dollar swap        11.00        -0.25    
 spread                                               
 U.S. 10-year dollar swap        3.75        -0.75    
 spread                                               
 U.S. 30-year dollar swap      -11.25        -1.50    
 spread                                               
 
    
 (Reporting by Kate Duguid; editing by David Gregorio and Tom
Brown)
  
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